2024 guide to maximise your tax deductions And Pay Off Your Mortgage Faster!
Tax #1 claiming interest on your loan.
Claiming interest on your investment property loan can provide significant tax benefits. You can claim the interest charged on the loan as a tax deduction, provided the loan is used to purchase, build, or improve the property.
STEP 1 : CHECK ELIGIBILITY
Ensure the property is rented or genuinely available for rent during the income year. Interest incurred for private purposes or when the property is used privately cannot be claimed. If you start to use the property for private purposes, you cannot claim the interest expenses you incur after you start using the property for private purposes.
Read more on ATO
STEP 2 : APPORTIONMENT
If the loan is used for both rental and private purposes, apportion the interest accordingly. Only the portion used for rental purposes is deductible.
For Example -
Stacy takes out a loan of $400,000, with $380,000 to be used to buy a rental property and $20,000 to buy a new car.
Stacy’s property is rented for the whole year from 1 July. Her total interest expense on the $400,000 loan is $35,000.
To work out how much interest she can claim as a tax deduction, Yoko must do the following calculation:
Total interest expenses × (rental property loan ÷ total borrowing) = deductible interest
$35,000 × ($380,000 ÷ $400,000) = $33,250
Yoko works out she can claim $33,250 as an allowable deduction.
Read more on ATO
STEP 3 : RECORD KEEPING
Maintain accurate records of interest payments and the proportion attributed to rental purposes. This is crucial for calculating the deductible amount accurately. You need to consider capital gains tax (CGT) when you sell your rental property, so keep all records for the entire period you own it, and for 5 years from the date you sell it.
STEP 1 : CHECK ELIGIBILITY
Ensure the property is rented or genuinely available for rent during the income year. Interest incurred for private purposes or when the property is used privately cannot be claimed. If you start to use the property for private purposes, you cannot claim the interest expenses you incur after you start using the property for private purposes.
Read more on ATO
STEP 2 : APPORTIONMENT
If the loan is used for both rental and private purposes, apportion the interest accordingly. Only the portion used for rental purposes is deductible.
For Example -
Stacy takes out a loan of $400,000, with $380,000 to be used to buy a rental property and $20,000 to buy a new car.
Stacy’s property is rented for the whole year from 1 July. Her total interest expense on the $400,000 loan is $35,000.
To work out how much interest she can claim as a tax deduction, Stacy must do the following calculation:
Total interest expenses × (rental property loan ÷ total borrowing) = deductible interest
$35,000 × ($380,000 ÷ $400,000) = $33,250
Stacy works out she can claim $33,250 as an allowable deduction.
Read more on ATO
STEP 3 : RECORD KEEPING
Maintain accurate records of interest payments and the proportion attributed to rental purposes. This is crucial for calculating the deductible amount accurately. You need to consider capital gains tax (CGT) when you sell your rental property, so keep all records for the entire period you own it, and for 5 years from the date you sell it.
Tax #1 claiming interest on your loan.
Claiming interest on your investment property loan can provide significant tax benefits. You can claim the interest charged on the loan as a tax deduction, provided the loan is used to purchase, build, or improve the property.
Tax #2 claiming borrowing expenses
Borrowing expenses include costs associated with taking out your investment property loan, such as loan establishment fees, title search fees, and mortgage broker fees.
STEP 1 : IDENTIFY DEDUCTIBLE EXPENSES
These include loan establishment fees, lender's mortgage insurance, stamp duty on the mortgage, title search fees, and mortgage broker fees. Exclude the amount borrowed and loan balances.
List of Expenses Included
-loan establishment fees
-lender’s mortgage insurance (insurance taken out by the lender and billed to you)
-stamp duty charged on the mortgage (stamp duty charged by your state or territory on the transfer of the property, is a capital expense)
-title search fees charged by your lender
-costs for preparing and filing mortgage documents (including solicitors’ fees)
-mortgage broker fees
-fees for a valuation required for a loan approval.
Read more in ATO
STEP 2 : CLAIMING CORRECTLY
If your borrowing expenses are over $100, spread the deduction over five years or the loan term, whichever is shorter. If they are $100 or less, claim the full amount in the year incurred.
Read more on ATO
STEP 3 : REPAYMENT ADJUSTMENTS
If you repay the loan early, claim the remaining borrowing expenses in the year of repayment.
Tax #2 Claiming Borrowing Expenses
Borrowing expenses include costs associated with taking out your investment property loan, such as loan establishment fees, title search fees, and mortgage broker fees.
STEP 1 : IDENTIFY DEDUCTIBLE EXPENSES
These include loan establishment fees, lender's mortgage insurance, stamp duty on the mortgage, title search fees, and mortgage broker fees. Exclude the amount borrowed and loan balances.
List of Expenses Included
-loan establishment fees
-lender’s mortgage insurance (insurance taken out by the lender and billed to you)
-stamp duty charged on the mortgage (stamp duty charged by your state or territory on the transfer of the property, is a capital expense)
-title search fees charged by your lender
-costs for preparing and filing mortgage documents (including solicitors’ fees)
-mortgage broker fees
-fees for a valuation required for a loan approval.
Read more in ATO
STEP 2 : CLAIMING CORRECTLY
If your borrowing expenses are over $100, spread the deduction over five years or the loan term, whichever is shorter. If they are $100 or less, claim the full amount in the year incurred.
Read more on ATO
STEP 3 : REPAYMENT ADJUSTMENTS
If you repay the loan early, claim the remaining borrowing expenses in the year of repayment.
Tax #3 claiming purchase costs
While you cannot claim the purchase price of the property itself, certain purchase costs are deductible. These include legal fees, stamp duty on the mortgage, and pest control fees. These costs form part of your property's cost base and can be used to reduce your capital gains tax liability when you sell the property.
STEP 1 : ELIGIBLE COSTS
Include costs like stamp duty on the purchase, legal fees for the property acquisition, and inspection fees. These are capital costs and not immediately deductible but added to the property's cost base for capital gains tax purposes.
Read More on - ATO
STEP 2 : NON ELIGIBLE COSTS
Exclude borrowing costs and interest expenses from purchase costs.
STEP 3 : DOCUMENTATION
Keep all purchase-related documents, such as contracts, receipts, and settlement statements, to substantiate your claims.
Tax #4 Getting Construction Costs right
If you have constructed or renovated your investment property, you can claim a deduction for the construction costs. This includes expenses such as building costs, architectural fees, and structural improvements.
STEP 1 : IDENTIFY DEDUCTIBLE FEES
Regular body corporate fees are deductible. Special levies for capital improvements are capital expenses and are not immediately deductible. Capital works describe certain kinds of construction expense used to produce income.
The rate of deduction for these expenses is generally 2.5% per year for 40 years following construction.
STEP 2 : CORRECT APPORTIONMENT
Apportion the fees if part of the property is used for private purposes.
Read More ATO
Tax #4 Getting Construction Costs right
If you have constructed or renovated your investment property, you can claim a deduction for the construction costs. This includes expenses such as building costs, architectural fees, and structural improvements.
STEP 1 : IDENTIFY DEDUCTIBLE FEES
Regular body corporate fees are deductible. Special levies for capital improvements are capital expenses and are not immediately deductible. Capital works describe certain kinds of construction expense used to produce income.
The rate of deduction for these expenses is generally 2.5% per year for 40 years following construction.
STEP 2 : CORRECT APPORTIONMENT
Apportion the fees if part of the property is used for private purposes.
Read More ATO
Tax #5 claiming body corporate fees and charges
Body corporate fees and charges related to the administration and maintenance of the property are deductible. This includes the cost of shared services and facilities such as elevators, swimming pools, and communal gardens.
STEP 1 : IDENTIFY DEDUCTIBLE FEES
Regular Body Corporate Fees: These fees are typically paid to cover the costs of maintaining and managing common areas in a multi-unit complex, such as cleaning, gardening, and general repairs. Regular body corporate fees are considered operating expenses and are fully deductible in the year they are incurred. Ensure you understand what portion of your fees falls under this category to claim the correct amount.
Special Levies for Capital Improvements: Occasionally, body corporates may levy special fees to fund major capital improvements or repairs, such as structural work or major upgrades to common areas. These are not immediately deductible as they are considered capital expenses. Instead, these costs can be added to the cost base of your property for capital gains tax purposes when you sell the property. Alternatively, you might be able to claim these expenses over time through capital works deductions.
Non-Deductible Fees: Be aware that some fees may not be deductible at all. These can include penalties for late payment of body corporate fees or fees that cover personal use amenities that do not relate to the earning of rental income.
Read more on ATO
STEP 2 : CORRECT APPORTIONMENT
Private vs. Rental Use: If your property is used for both private and rental purposes, you must apportion the body corporate fees accordingly. For example, if you use 50% of the property privately and rent out the other 50%, you can only claim 50% of the body corporate fees as a deductible expense.
Shared Use Calculations: Calculate the apportionment based on the floor area used for private purposes versus the floor area rented out. This ensures that the deductions claimed accurately reflect the use of the property for income-producing activities.
Documenting Apportionment: Keep detailed records of how you calculated the apportionment. This includes notes on the floor area calculations and any changes in the use of the property over the year. This documentation is essential in case of an audit to demonstrate that your claims are accurate and justified.
STEP 3 : MAINTAINING RECORDS
Detailed Statements and Receipts: Collect and store all body corporate statements and receipts that detail the fees charged and the services covered. This documentation provides the evidence needed to substantiate your claims and ensure they are accurate.
Categorising Fees: Organise your records by categorizing fees into deductible and non-deductible expenses. This helps in simplifying the tax filing process and ensures that you claim the correct amounts.
Annual Review: At the end of each financial year, review your records to ensure all fees have been accurately categorised and that no deductible expenses have been missed. This review should include checking for any special levies or adjustments that might affect your deductions.
Digital Records: Consider maintaining digital copies of all records. This not only helps in organising and accessing records easily but also ensures that you have a backup in case physical documents are lost or damaged.
Read more on ATO
Tax #6 Apportioning Expenses And Income For Co-Owned Properties
If you co-own an investment property, you must apportion the income and expenses according to your legal ownership interest.
STEP 1 : DETERMINE OWNERSHIP
Legal Ownership Interest: The first step in apportioning expenses and income for a co-owned property is determining each co-owner’s legal ownership interest. This is usually outlined in the property deed or the ownership agreement. For example, if two people own a property as joint tenants, each typically has a 50% interest. If the property is owned as tenants in common, the ownership shares may differ, such as one owner having a 60% interest and the other a 40% interest..
Reflect Ownership in Tax Records: Ensure that your ownership share is correctly reflected in all tax records and financial statements. This helps in accurately reporting income and expenses. Each owner should report their respective share of the rental income and deductible expenses based on their ownership percentage
Read More on ATO
STEP 2 : ACCURATE APPORTIONMENT
Proportionate Income Reporting: Each co-owner must report their share of rental income in proportion to their ownership interest. For instance, if you own 50% of a property, you should report 50% of the rental income on your tax return. This ensures that income is reported consistently with ownership interests.
Expense Deduction: Similarly, all deductible expenses, such as maintenance costs, loan interest, and property management fees, should be apportioned according to each co-owner’s ownership share. For example, if the total interest paid on the property’s mortgage is $10,000, and you own 40% of the property, you can claim $4,000 as a deduction.
Special Considerations: If one co-owner incurs an expense that benefits the entire property, this expense should still be apportioned according to ownership interest unless otherwise agreed upon by all owners. Ensure any agreements about expense sharing are documented to avoid disputes and facilitate accurate tax reporting .
Read More on ATO
STEP 3 : RECORD KEEPING
Detailed Records: Maintain detailed and accurate records of all income received and expenses incurred. This includes rental income receipts, mortgage interest statements, maintenance bills, property management fees, and any other relevant financial documents. Proper documentation is essential for substantiating your claims during tax assessments.
Separate Records for Each Owner: Each co-owner should keep their own set of records reflecting their share of income and expenses. This practice ensures clarity and ease during tax filing and any potential audits. It also helps in resolving any disputes that may arise between co-owners regarding financial contributions and benefits.
Consistent Updates: Regularly update your records to reflect any changes in income, expenses, or ownership interest. This is particularly important if there are significant changes, such as one co-owner buying out another’s interest or if major capital expenses are incurred. Consistent record-keeping helps in accurate financial planning and tax reporting.
Read more on ATO
Tax #6 Apportioning Expenses And Income For Co-Owned Properties
If you co-own an investment property, you must apportion the income and expenses according to your legal ownership interest.
STEP 1 : DETERMINE OWNERSHIP
Legal Ownership Interest: The first step in apportioning expenses and income for a co-owned property is determining each co-owner’s legal ownership interest. This is usually outlined in the property deed or the ownership agreement. For example, if two people own a property as joint tenants, each typically has a 50% interest. If the property is owned as tenants in common, the ownership shares may differ, such as one owner having a 60% interest and the other a 40% interest..
Reflect Ownership in Tax Records: Ensure that your ownership share is correctly reflected in all tax records and financial statements. This helps in accurately reporting income and expenses. Each owner should report their respective share of the rental income and deductible expenses based on their ownership percentage
Read More on ATO
STEP 2 : ACCURATE APPORTIONMENT
Proportionate Income Reporting: Each co-owner must report their share of rental income in proportion to their ownership interest. For instance, if you own 50% of a property, you should report 50% of the rental income on your tax return. This ensures that income is reported consistently with ownership interests.
Expense Deduction: Similarly, all deductible expenses, such as maintenance costs, loan interest, and property management fees, should be apportioned according to each co-owner’s ownership share. For example, if the total interest paid on the property’s mortgage is $10,000, and you own 40% of the property, you can claim $4,000 as a deduction.
Special Considerations: If one co-owner incurs an expense that benefits the entire property, this expense should still be apportioned according to ownership interest unless otherwise agreed upon by all owners. Ensure any agreements about expense sharing are documented to avoid disputes and facilitate accurate tax reporting .
Read More on ATO
STEP 3 : RECORD KEEPING
Detailed Records: Maintain detailed and accurate records of all income received and expenses incurred. This includes rental income receipts, mortgage interest statements, maintenance bills, property management fees, and any other relevant financial documents. Proper documentation is essential for substantiating your claims during tax assessments.
Separate Records for Each Owner: Each co-owner should keep their own set of records reflecting their share of income and expenses. This practice ensures clarity and ease during tax filing and any potential audits. It also helps in resolving any disputes that may arise between co-owners regarding financial contributions and benefits.
Consistent Updates: Regularly update your records to reflect any changes in income, expenses, or ownership interest. This is particularly important if there are significant changes, such as one co-owner buying out another’s interest or if major capital expenses are incurred. Consistent record-keeping helps in accurate financial planning and tax reporting.
Read more on ATO
Tax #7 keeping the right records
STEP 1 : INCOME AND EXPENSE
Income and Expense Documentation: Maintain detailed records of all rental income and deductible expenses.
Purchase and Sale Records: Keep documents related to the purchase and sale of the property, such as contracts and settlement statements.
Supporting Evidence: Retain loan statements, body corporate fee receipts, and other supporting documents.
Read More on ATO
STEP 2 : PURCHASE AND SALE RECORDS
Purchase and Sale Records: Keep documents related to the purchase and sale of the property, such as contracts and settlement statements.
Read More on ATO
Tax #8 Seek Advice
Seek advice from professionals like us who can help with all these steps but most importantly who can supercharge steps 2 and 4 using ATO approved tax minimisation strategies.
Learn how to get your home a job and use your tax dollars to supercharge steps 2 & 4 using a purpose-built concrete money box and pay off your mortgage faster!
7 ASIC approved steps to pay off your home loan faster!
#1 Switching to Fortnightly Payments
Switching from monthly to fortnightly mortgage repayments can significantly reduce your loan term and the amount of interest paid.
STEP 1 : CHECK WITH LENDER
Check with Your Lender:
Contact your mortgage lender to confirm that they allow fortnightly payments. Some lenders might have specific procedures or fees associated with changing your repayment schedule.
Set Up Automatic Payments:
Arrange with your lender or your bank to set up automatic fortnightly payments. This ensures that you stay consistent with your new repayment schedule and maximise the interest savings over time
Read more in Moneysmart
STEP 2 : CALCULATE NEW REPAYMENT
Calculate the New Repayment Amount: Determine your fortnightly repayment amount by dividing your current monthly payment by two. This new repayment schedule will result in an extra month's worth of payments over the course of a year, helping to reduce the loan principal faster.
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STEP 3 : SET UP AUTOMATIC PAYMENTS
Set Up Automatic Payments: Arrange with your lender or your bank to set up automatic fortnightly payments. This ensures that you stay consistent with your new repayment schedule and maximise the interest savings over time
Read more on Moneysmart
Impact Of Shifting To Fortnightly Payments
Impact of Shifting to Fortnightly Payments on Home Loan
#2 Making Extra Payments
Making additional payments towards your mortgage can help you pay off your home loan faster. Applying any extra funds, such as tax refunds or work bonuses, directly to your mortgage reduces the principal amount faster.
STEP 1 : REVIEW YOUR LOAN TERMS
Check your mortgage agreement to understand any restrictions or fees for making additional payments. Some loans might have prepayment penalties.
Read more in Home - Moneysmart.gov.au
STEP 2 : ALLOCATE EXTRA FUNDS
Use extra income such as tax refunds, bonuses, or savings to make additional payments. Even small, regular extra payments can significantly reduce the overall interest paid and shorten the loan term.
Read more on Moneysmart
STEP 3 : NOTIFY YOUR LENDER
Ensure that any extra payments are applied to the principal amount of your loan, not just the next scheduled payment. Confirm with your lender how to make these additional payments correctly.
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#2 Making Extra Payments
Making additional payments towards your mortgage can help you pay off your home loan faster. Applying any extra funds, such as tax refunds or work bonuses, directly to your mortgage reduces the principal amount faster.
STEP 1 : REVIEW YOUR LOAN TERMS
Check your mortgage agreement to understand any restrictions or fees for making additional payments. Some loans might have prepayment penalties.
Read more in Home - Moneysmart.gov.au
STEP 2 : ALLOCATE EXTRA FUNDS
Use extra income such as tax refunds, bonuses, or savings to make additional payments. Even small, regular extra payments can significantly reduce the overall interest paid and shorten the loan term.
Read more on Moneysmart
STEP 3 : NOTIFY YOUR LENDER
Ensure that any extra payments are applied to the principal amount of your loan, not just the next scheduled payment. Confirm with your lender how to make these additional payments correctly.
Read more on Moneysmart
#3 Finding a Lower interest rate
Regularly reviewing and comparing home loan interest rates can help you find a better deal. Many comparison websites can assist in evaluating different loan options.
STEP 1 : RESEARCH AND COMPARE RATES
Use comparison websites to research current mortgage rates. Look for lower rates that offer the same or better terms than your current loan.
A mortgage broker or comparison websites can help you find out the best options available to you.
Once you have a short list of potential loans and the fees involved, use the mortgage switching calculator to work out if you'll save money by changing home loans. It also shows how long it will take to recover the cost of switching. Mortgage Switching Calendar
Compare the Following Fees and Charges
Fixed rate loan - If you are on a fixed rate loan, you may need to pay a break fee.
Discharge (or termination) fee - A fee when you close your current loan.
Application fee - Upfront fee when you apply for a new loan.
Switching fee - A fee for refinancing internally (staying with your current lender but switching to a different loan).
Stamp duty - You may be liable for stamp duty when you refinance. Check with your lender.
Read more in Home - Moneysmart.gov.au
STEP 2 : NEGOTIATE WITH YOUR CURRENT LENDER
Approach your existing lender with the lower rates you’ve found and ask if they can match or beat those rates. Lenders often prefer to keep existing customers and may offer a better rate to retain your business.
If you have at least 20% equity in your home, you'll have more to bargain with. Having a good credit score will also help with negotiations.
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STEP 3 : CONSIDER REFINANCING
If your current lender cannot offer a competitive rate, consider refinancing your mortgage with a new lender. Some lenders will only refinance with a new 25 or 30 year loan term. You could end up with a longer loan term than the years left to pay off your current mortgage. The longer you have a loan, the more you'll pay in interest. If you do decide to switch, negotiate a loan with a similar length to your current one.
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#4 Make Higher Repayments
If you can afford to increase your repayment amounts, you will pay off your mortgage faster and save on interest. Higher repayments mean that more of your money goes towards reducing the principal rather than just covering the interest.
STEP 1 : ADJUST YOUR BUDGET
Review your monthly budget to identify areas where you can cut expenses and allocate more funds towards your mortgage. Even small increases in your repayment amount can significantly reduce the loan term.
On a typical 25-year principal and interest mortgage, most of your payments during the first five to eight years go towards paying off interest. So anything extra you put in during that time will reduce the amount of interest you pay and shorten the life of your loan.
Read more on Moneysmart
STEP 2 : CHECK WITH YOUR LENDER ON EXTRA FEES/TERMS
Contact your lender to increase your automatic repayment amount. Ensure the extra amount is applied to the loan principal, which will reduce the interest paid over the life of the loan. Also make sure that your lender has no extra fees on paying larger amounts.
Read more at Moneysmart
STEP 3 : MONITOR YOUR PROCESS
Regularly review your mortgage statements to track the reduction in your loan principal and the interest savings achieved by making higher repayments.
Read more on Moneysmart
#4 Make Higher Repayments
If you can afford to increase your repayment amounts, you will pay off your mortgage faster and save on interest. Higher repayments mean that more of your money goes towards reducing the principal rather than just covering the interest.
STEP 1 : ADJUST YOUR BUDGET
Review your monthly budget to identify areas where you can cut expenses and allocate more funds towards your mortgage. Even small increases in your repayment amount can significantly reduce the loan term.
On a typical 25-year principal and interest mortgage, most of your payments during the first five to eight years go towards paying off interest. So anything extra you put in during that time will reduce the amount of interest you pay and shorten the life of your loan.
Read more on Moneysmart
STEP 2 : CHECK WITH YOUR LENDER ON EXTRA FEES/TERMS
Contact your lender to increase your automatic repayment amount. Ensure the extra amount is applied to the loan principal, which will reduce the interest paid over the life of the loan. Also make sure that your lender has no extra fees on paying larger amounts.
Read more at Moneysmart
STEP 3 : MONITOR YOUR PROCESS
Regularly review your mortgage statements to track the reduction in your loan principal and the interest savings achieved by making higher repayments.
Read more on Moneysmart
#5 considering an offset account
An offset account can reduce the amount of interest you pay on your home loan. This type of account is linked to your mortgage, and the balance in the offset account is deducted from your loan principal when interest is calculated.
STEP 1 : UNDERSTAND HOW AND OFFSET ACCOUNT WORKS
An offset account is a savings or transaction account linked to your mortgage. The balance in this account offsets the loan principal, reducing the interest charged.
Say you have a home loan balance of $400,000 and savings of $20,000. If you keep the $20,000 in an offset account, the interest on your home loan will only be charged on $380,000, not $400,000. You won’t receive interest on the $20,000 in the offset account; instead, that $20,000 is offsetting and reducing the interest otherwise charged on your home loan.
Read more on Moneysmart
STEP 2 : DEPOSIT FUNDS IN THE OFFSET ACCOUNT
Use the offset account as your primary savings or transaction account. Deposit your salary and other income into this account to maximize the interest offset. The more money you have in your offset account, the more you could save on interest payments for your home loan, which will likely make your home loan term shorter.
Read more at Moneysmart
STEP 3 : MONITOR THE OFFSET BALANCE
Regularly check the balance of your offset account to ensure it remains as high as possible. Even though you typically don’t receive interest with an offset account, your money is still working hard for you. The point of an offset account is to reduce the amount of borrowed money on which you are paying interest and shorten the term of your loan.
Read more on Moneysmart
#5 Considering An Offset Account
An offset account can reduce the amount of interest you pay on your home loan. This type of account is linked to your mortgage, and the balance in the offset account is deducted from your loan principal when interest is calculated.
STEP 1 : UNDERSTAND HOW AND OFFSET ACCOUNT WORKS
An offset account is a savings or transaction account linked to your mortgage. The balance in this account offsets the loan principal, reducing the interest charged.
Say you have a home loan balance of $400,000 and savings of $20,000. If you keep the $20,000 in an offset account, the interest on your home loan will only be charged on $380,000, not $400,000. You won’t receive interest on the $20,000 in the offset account; instead, that $20,000 is offsetting and reducing the interest otherwise charged on your home loan.
Read more on Moneysmart
STEP 2 : DEPOSIT FUNDS IN THE OFFSET ACCOUNT
Use the offset account as your primary savings or transaction account. Deposit your salary and other income into this account to maximize the interest offset. The more money you have in your offset account, the more you could save on interest payments for your home loan, which will likely make your home loan term shorter.
Read more at Moneysmart
STEP 3 : MONITOR THE OFFSET BALANCE
Regularly check the balance of your offset account to ensure it remains as high as possible. Even though you typically don’t receive interest with an offset account, your money is still working hard for you. The point of an offset account is to reduce the amount of borrowed money on which you are paying interest and shorten the term of your loan.
Read more on Moneysmart
#6 Avoiding Interest only loans
While interest-only loans may have lower initial repayments, they do not reduce the loan principal. This means you will end up paying more interest over the life of the loan, and the loan term may be longer.
STEP 1 : UNDERSTAND THE LONG-TERM COSTS
Interest-only loans typically have lower initial payments but do not reduce the loan principal. Over time, this can result in higher overall interest payments.
For a set period (for example, five years), you pay nothing off the amount borrowed, so it doesn't reduce.
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STEP 2 : CALCULATE PAYMENTS AFTER INTEREST ONLY PERIOD
Work out how much your repayments will be at the end of the interest-only period. Make sure you can afford the higher repayments.
Give yourself some breathing room. As interest rates rise, your loan repayments will go up even more. Use the interest only mortgage calculator
Read more at Moneysmart
STEP 3 : REVALUATE YOUR FINANCIAL SITUATION
If you are currently on an interest-only loan, consider switching to principal and interest repayments as soon as possible. Consult with your lender about the process and any associated costs.
Read more on Moneysmart
| Loan Type | Years to Repay | Graph |
|---|---|---|
| Interest-Only Loan | 30 | |
| Principal and Interest Repayment | 25 |
*Model borrowing amount assumed is $300,000
#7 Seek Advice
Seek advice from professionals like us who can show you how to supercharge your tax deductions & rental yield to maximise your investment return, minimise your costs.
Learn how to get your home a job to maximise your tax deductions using a purpose-built concrete money box and pay off your mortgage faster!
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